Is the expense of purchasing life insurance for employees deductible from taxable corporate income tax in Vietnam?

Is the expense of purchasing life insurance for employees deductible from taxable corporate income tax in Vietnam?

Pursuant to point 2.11, clause 2, Article 6 of Circular 78/2014/TT-BTC (amended and supplemented by clause 3, Article 3 of Circular 25/2018/TT-BTC) regarding non-deductible expenses in determining taxable income for corporate income tax:

Deductible and non-deductible expenses in determining taxable income:

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2.11. The portion of expenses exceeding 3 million VND/month/person for: contributions to voluntary retirement funds, purchasing voluntary retirement insurance, life insurance for employees; the portion exceeding the stipulated amount by law for social insurance and health insurance to contribute to social welfare funds (compulsory supplementary pension insurance), health insurance, and unemployment insurance funds for employees.

Expenses for contributions to voluntary retirement funds, social welfare funds, purchasing voluntary retirement insurance, and life insurance for employees are included in deductible expenses, provided that they do not exceed the stipulated limits and are specifically recorded in one of the following documents: labor contract; collective labor agreement; financial regulation of the Company, Corporation, Group; reward regulations set by the Chairman of the Board of Directors, General Director, Director according to the company's financial regulation, Corporation.

Businesses are not allowed to include expenses in deductible costs for the aforementioned voluntary programs if they do not fully comply with mandatory insurance obligations for employees (including cases where there is outstanding debt on mandatory insurance payments).

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Simultaneously, in Official Dispatch 8974/CTHN-TTHT dated February 23, 2024, the Hanoi City Tax Department provided guidance on this issue.

Therefore, if a company purchases life insurance for its employees, this is considered a deductible expense when calculating corporate income tax, provided it does not exceed 3 million VND/month/person (the excess will be considered non-deductible when calculating corporate income tax) and meets certain stipulated conditions.

Is the expense of purchasing life insurance for employees deductible from taxable corporate income tax in Vietnam? (Image from the Internet)

What conditions must be met for life insurance expenses for employees to be considered deductible when calculating corporate income tax in Vietnam?

According to clause 1, Article 6 of Circular 78/2014/TT-BTC (amended by Article 4 of Circular 96/2015/TT-BTC) regarding expenses that can and cannot be deducted when determining taxable income, it states:

Expenses that can and cannot be deducted when determining taxable income

1. Except for the non-deductible expenses mentioned in Clause 2 of this Article, businesses may deduct all expenses if the following conditions are met:

a) The actual expense incurred relates to the business activities of the enterprise.

b) The expense is adequately supported by legal invoices and documents according to the provisions of the law.

c) If expenses include an invoice for goods or services with a value of 20 million VND or more (VAT included), payment must be made through a non-cash payment method.

Non-cash payment documentation is implemented according to the provisions of the legal documents on value-added tax.

In cases where a business purchases goods or services with a value of twenty million VND or more as indicated on an invoice, but at the time of recognizing the expense, the business has not made the payment, the business is allowed to record the expense as deductible when determining taxable income. If upon payment the business does not have non-cash payment documentation, the business must declare and adjust to reduce expenses for the value of goods and services lacking non-cash payment documentation in the tax period when cash payment is made (even if the tax authority and relevant agencies have already conducted audits or inspections for that tax period with such expense incurred).

For invoices of goods and services paid by cash occurring before Circular 78/2014/TT-BTC became effective, adjustments need not be made according to this point.

In case a business purchases goods or services related to its business activities and has an invoice printed directly from a cash register according to regulations on invoices, if this invoice has a value of 20 million VND or more, the business may base its deductible expenses on that invoice and accompanying non-cash payment documentation.

In case a business purchases goods or services related to their business activities and has an invoice printed directly from a cash register according to regulations on invoices, if this invoice is less than 20 million VND and is paid by cash, the business may base its deductible expenses on that invoice and cash payment documentation.

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Expenses for purchasing life insurance for employees are considered deductible when calculating corporate income tax if the following conditions are met:

- Must be an actual company expense for employees;

- Supported by adequate and legal invoices and documents;

- The business must fulfill mandatory insurance obligations for employees (no outstanding debt on mandatory insurance) before purchasing life insurance;

- The life insurance expense must be specifically recorded in one of the following documents:

+ Labor contract;

+ Collective labor agreement;

+ Financial regulations of the Company, Corporation, Group;

+ Reward regulations set by the Chairman of the Board of Directors, General Director, Director according to the company's financial regulations, Corporation.

- The expense for purchasing life insurance for employees must not exceed 3 million VND/month/person (the excess will be considered non-deductible when calculating corporate income tax).

Which entities are corporate income tax payers?

Based on Article 2 of Circular 78/2014/TT-BTC, the entities subject to corporate income tax are specified as follows:

(1) Entities subject to corporate income tax are organizations engaged in the production and trading of goods and services generating taxable income (hereinafter referred to as enterprises), including:

- Enterprises established and operating in accordance with the Law on Enterprises, the Law on Investment, the Law on Credit Institutions, the Law on Insurance Business, the Law on Securities, the Law on Petroleum, the Law on Commerce, and other legal normative documents in forms such as: Joint Stock Companies; Limited Liability Companies; Partnerships; Private Enterprises; Law Office, Private Notary Office; Parties to business cooperation contracts; Parties to oil and gas product-sharing contracts, joint venture oil and gas enterprises, and joint operating companies.

- Public and non-public service units producing or trading goods and services generating taxable income in all sectors.

- Organizations established and operating under the Law on Cooperatives.

- Enterprises established according to foreign law (hereinafter referred to as foreign enterprises) with a permanent establishment in Vietnam.

A permanent establishment of a foreign enterprise is a production or business facility through which the foreign enterprise conducts partial or entire production or business activities in Vietnam, including:

+ Branch, representative office, factory, workshop, means of transport, mines, oil or gas fields, or other exploitation locations of natural resources in Vietnam;

+ Construction sites, installation, assembly projects;

+ Facilities providing services, including consulting services through employees or other organizations and individuals;

+ Agents for foreign enterprises;

+ Representatives in Vietnam if acting in the capacity of signing contracts on behalf of a foreign enterprise or representatives not authorized to sign on behalf of foreign enterprises but regularly perform delivery of goods or services in Vietnam.

In case the double taxation avoidance agreement that the Socialist Republic of Vietnam has signed has different provisions regarding permanent establishments, the provisions of that agreement shall apply.

- Other organizations aside from those mentioned in points a, b, c, and d of Clause 1 of this Article with production or trading activities in goods or services, generating taxable income.

(2) Foreign organizations producing and trading in Vietnam not under the Law on Investment, the Law on Enterprises, or generating income in Vietnam shall pay corporate income tax as instructed separately by the Ministry of Finance. These organizations, if engaged in capital transfer activities, shall pay corporate income tax following the guidance at Article 14, Chapter 4 of Circular 78/2014/TT-BTC.